Investors are betting on higher gold prices amid concern about the strength of the global economy.
Photo: Eddie Jim
Speculators added bullish gold bets for the first time in
nine weeks as concern that global economic growth is slowing whipsawed
equity markets.
The gain in the net-long position in New York
gold futures and options snapped the longest run of reductions since
2010. Prices rose for a second week as global equities retreated to an
eight-month low.
More than $US3.2 trillion ($3.65 trillion) was
wiped from the value of world shares this month as the International
Monetary Fund cut its outlook for global growth in 2015. Federal Reserve
policy makers identified slowing foreign economies as a risk to the US,
spurring the fastest purchases of gold held through exchange- traded
products since July.
"In the last couple of weeks, it has become a
lot clearer that when money is flowing out of all asset classes, it does
not seem to be flowing out of the gold market," said Eric Zoldan, a New
York-based certified investment management analyst with JHS Capital
Advisors, which oversees about $US4 billion. "As the news flow continues
to come out that the global economy and demand for things is
deteriorating, it leads investors back to the asset class of gold."
Gold prices
Futures increased 1.4 per cent to $US1,239 an ounce on the
Comex in New York last week, after a 2.4 per cent gain in the prior week
that was the biggest since June. The Bloomberg Commodity Index of 22
raw materials fell 0.6 per cent last week. The MSCI All-Country World
Index of equities slipped 0.9 per cent and reached the lowest since
February on Thursday. The Bloomberg Dollar Spot Index dropped 0.6 per
cent.
The net-long position in gold jumped 39 per
cent to 51,994 futures and options contracts in the week ended October
14, according to US Commodity Futures Trading Commission data published
three days later. That was the biggest gain since June 24. Short
holdings betting on a decline shrank 1.7 per cent.
About $US2.1 billion was added to the value of
global gold ETPs in the two weeks to October 17. Germany cut its growth
outlook through 2015 and investor confidence dropped to the weakest in
two years.
Signs of slowing expansion have increased
speculation that global central bankers will increase stimulus measures
and the Fed will delay raising interest rates. The European Central Bank
will start within days to purchase assets, Benoit Coeure, an executive
board member, said on Thursday. A day earlier, St. Louis Fed Bank
President James Bullard said policy makers should consider delaying the
end of its bond-purchase program.
Money supplies
Gold surged 70 per cent from December 2008 to June 2011 as
global central banks increased money supplies on an unprecedented scale,
spurring inflation concerns.
Prices dropped 8.4 per cent last quarter as
investors bet an accelerating US economy would prompt the Fed to raise
borrowing costs. Confidence among American consumers rose this month to
the highest in seven years. Rising rates reduce gold's allure because
the metal generally only offers investors returns through price gains,
while a stronger dollar typically cuts demand for a store of value.
Investors pulled $US1.1 billion from
exchange-traded funds that track precious metals since the start of the
year, while holdings in energy and industrial-metals funds have gained.
Bank of America Merrill Lynch last week lowered its 2015 outlook for
bullion by 11 per cent to $US1,225. In 2013, gold fell 28 per cent as
some investors lost faith in the metal as a store of value.
Bullish holdings
"For gold, I think this is a short-term shift in market
sentiment rather than a change in underlying fundamentals," Rob Haworth,
a senior investment strategist in Seattle at US Bank Wealth Management
which oversees about $US120 billion. "Fundamentals in the US remain
good. Fundamentals in Europe are not great, but they are not horrible
either. The economic story is not falling apart."
Net-bullish holdings across 18 US-traded commodities rose 12 per cent to 488,295 contracts as of October 14, the CFTC data show.
Speculators got less bearish on copper, taking
their net-short position to 11,375 contracts from 21,249 a week
earlier. Work began on more US homes in September, the Commerce
Department said October 17. The Copper Development Association estimates
that the average single-family home uses 439 pounds (199 kilograms) of
the metal, needed for wires and plumbing.
